Political Business Cycles
Public Choice 126: 257-274, 2005
Abstract. In presenting evidence in favor of rational partisan cycles, where electoral victories by leftist parties are expected to create temporary expansions and electoral victories by rightist parties are expected to create temporary recessions, Alesina, Cohen and Roubini (1999) rely upon autoregressive time series intervention regressions. Theses regressions, however, are not consistent with their model. In this paper, a model is derived which is consistent with the intervention approach in its reduced-form. The differences between the models are highlighted and new empirical estimates are presented on a panel of seven OECD nations, which generally does not support the rational partisan cycle implications.
Political Monetary Cycles under Alternative Institutions: The Indepedent Treasury and the Federal Reserve
Economics and Politics 17: 331-350, 2005
Abstract. The theory of opportunistic political business cycles predicts incumbent politicians will alter their economic policies to spur short-run growth to attract additional votes for the upcoming election. There has not been much emphasis on the possibility of historical political business cycles prior to the Keynesian Revolution. No study has yet undertaken a systematic approach to testing for policy cycles during this period. Our study will bridge this gap by considering cycles in monetary policy for the periods of 1879-1914 until the start of Fed operations, and 1914-1932 until abandonment of the gold standard. To properly test for political cycles, it is necessary to develop reaction functions for the Treasury and compare against the reaction function later held by the Fed. This also reveals that creation of an independent monetary authority to be insulated from political pressures changed the manner in which policy was directed, aside from political issues. The evidence is not consistent, however, with monetary cycles closely tied to electoral concerns.
Public Choice 113: 179-189, 2002
Abstract. The partisan advantage and incumbency advantage versions of the rational partisan business cycle model are tested. Both models assume agents form weighted averages of partisan inflation rates during an election period, and differ only in how the weights are formed which alters the form of business cycles. The partisan advantage assumes fixed weights designated for both major parties in each election, whereas the incumbency advantage model assumes fixed weights for whichever is the incumbent and opposition party in each election. The symmetric representation assumes each election is a toss-up. Strongest support is found for a temporary symmetric effect on the level of output, but none of the models are supported for temporary electoral changes in growth or unemployment rates.
Canadian Journal of Economics 35: 568-585, 2002
Abstract. The Variable Rational Partisan Business Cycle model is developed, where agents face uncertainty regarding the timing and outcome of the next election. The model predicts that partisan influences on the economy persist throughout the government's rule, and are further influenced, in the opposite direction, by which party ruled in the previous period. Party popularity also has a causal effect on the business cycle. Finally, the effects from changes in election timing expectations are dependent on which party ruled in the previous period. Empirical results for output and unemployment in Canada, Germany and United Kingdom yield mixed support for the model.
Journal of Macroeconomics 23: 261-275, 2001
Abstract. This paper develops a model where rational economic agents face uncertainty regarding the timing of elections and which party will emerge victorious should an election occur. This electoral uncertainty affects the macroeconomy, where the size and direction of the impacts are dependent on the party in power in the current and previous period, time elapsed since the last election, and party popularity. Leftist governments are expected to sustain higher output levels throughout their electoral term compared to rightwing governments, and the partisan differences will continue to increase until the next election.
Applied Economics 33: 417-426, 2001
Abstract. This paper develops an econometric intervention model representing the standard empirical approach to testing Alesina's (1987) Rational Partisan Theory implication that elections lead to short-term changes in output growth and unemployment. This intervention approach may be subject to two econometric difficulties. First, the cyclical nature of the autoregressive variables suggest the regression residuals may be serially correlated. Second, the election intervention variable may be endogenous to the cyclical variables. Empirical support for the model is mixed. Ordinary Least Squares estimates for both series produce a coefficient for the intervention variable which is of the predicted sign but not significant. The output growth regression results are robust to serial correlation and endogeneity concerns. For unemployment, controlling for serial correlation generates a significant coefficient, but adjusting for endogeneity does not.
EH.Net Encyclopedia of Economic and Business History (Robert Whaples, ed.), 2001
Abstract. An on-line enecylopedia entry of the literature on political business cycles using historical data.
Adaptive Partisan Theory
Journal of Public Finance and Public Choice 17: 11-18, 1999
Abstract. Previous empirical studies designed to test the rational expectations partisan model of Alesina  have generally looked for changes in real macroeconomic variables following a change in party power (incumbent party loss), whereas the model predicts these variables should fluctuate in a predictable manner even when the incumbent party is reelected. It is shown in this paper that the previous evidence is supportive of a partisan policy model where agents employ adaptive expectations, in which case only changes in party power lead to partisan economic fluctuations of real variables.
Testing Rational Partisan Theory when Elections are Endogenous Events: Some Empirical Evidence from the United Kingdom
Quarterly Journal of Business and Economics 38: 45-56, 1999
Abstract. Rational partisan theory predicts macroeconomic fluctuations are triggered by possible changes in government policies due to elections. Empirical testing may fall prey to an endogeneity problem when incumbent governments determine the timing of an election and voters respond to current economic conditions in their choice of party support. Hausman tests suggest elections in Britain are endogenous to growth and stronger support is found for rational partisan theory using an instrumental variable routine.
Southern Economic Journal 64: 987-1000, 1998
Abstract. Empirical research of political business cycles (PBCs) may suffer from endogeneity bias when incumbent governments have discretion to call for an early election. Using an instrumental variable (IV) routine on data from Japan and the U.K., we find strong evidence to support the notion that election timing is a function of the economy rather than the macroeconomy being driven by elections as assumed in PBC. In single-equation regressions, no evidence of political cycles are found, but Hausman tests suggest elections are endogenous in our regressions. A monetary cycle in Japan and an inflation cycle in the U.K. are uncovered through IV estimation.
Economics and Politics 10: 297-309, 1998
Abstract. The theory of political business cycles predicts economies will experience a short-run expansion during an election period. Cross-sectional evidence from 1870, 1880, 1890, 1900, and 1910, does not reveal statistically significant differences in gainful employment rates between states with and without a gubernatorial election in that year. Pooled regression analysis suggests gubernatorial elections are positively correlated with the state employment rate, but an annual fixed effect model designed to account for differences in the measurement of gainful employment mitigates this conclusion.
Economics Letters 51: 247-251, 1996
Abstract. We test for the existence of political business cycles using annual data for the period from 1869 to 1929, finding only weak supportive evidence.